MacroEcon Ch 9
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
$70,288
Which of the following statements about prices and inflation is not correct?
prices generally increase at the same rate across most periods of time
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
Why do economists believe that setting a goal of zero percent unemployment is not feasible or desirable? Creating a goal of zero percent unemployment for an economy is not feasible nor is it desirable because
the economy needs some short-term unemployment in order to allow for better matching of jobs with workers that possess the proper skill sets.
Suppose an economy is given by: Population = 215 million Working-age population = 116 million Labor force = 73 million The number of people employed = 67 million The number of people unemployed = 6 million The labor force participation rate for this economy is
62.9%
The nominal interest rate is 14%. The inflation rate is 6%. The real interest rate is equal to
8%
Suppose the economy's consumer price index (CPI) in 2008 was 187 and the CPI in 2009 was 195. The inflation rate over the period from 2008-2009 was equal to
4.3%
_____________ is unemployment caused by a recession.
Cyclical unemployment
According to Costco's CEO, Jim Sinegal: "Paying good wages and keeping your people working for you is good business...Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you." What is Costco's CEO referring to?
Efficiency wages
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
Frictionally unemployed
Which of the following is an example of cyclical unemployment?
In an economic downturn, a manufacturing plant reduces production and temporarily lays off workers.
Which of the following is a problem of unanticipated inflation?
Redistribution of income from lenders to borrowers
What effect do labor unions have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
An efficiency wage is
an above-market wage paid by a firm to maximize worker productivity.
What index is used to measure the average prices paid by a typical family? An average of the prices of the goods and services purchased by a typical family is the:
consumer price index (CPI)
As output (GDP) is increasing, the amount of cyclical unemployment would ___________ .
decrease
In an economy, the working-age population is 200 million. Of this total, 150 million workers are employed. 8 million workers are unemployed. 32 million workers are not available for work (homemakers, full-time students, etc.). 6 million workers are available for work but are discouraged and thus are not seeking work. 4 million workers are available for work but are not currently seeking work due to transportation or childcare problems. The unemployment rate in this economy is ______.
5.1%
Suppose an economy is given by the following: Population = 290 million Labor force = 189 million The number of people employed = 178.6 million The number of people unemployed = 10.4 million Given the information above, the unemployment rate is
5.5%
Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?
Structurally unemployed
____________________ is the percentage of the working-age population in the labor force.
The labor force participation rate
The natural rate of unemployment tends to be lower when
unemployment insurance benefits are lower
In August 2013, the working-age population of the United States was 245.9 million. The working-age population is divided into those in the labor force (155.5 million) and those not in the labor force (90.4 million). The labor force is divided into the employed (144.2 million) and the unemployed (11.3 million). Those not in the labor force are divided into those not available for work (84.1 million) and those available for work (6.3 million). Finally, those available for work but not in the labor force are divided into discouraged workers (0.9 million) and those currently not working for other reasons (5.4 million). Use this data to help determine which one of the following statements is true:
Both A and B A. The unemployment rate is 11.3 million / 155.5 million x 100 = 7.3% B. The labor force participation rate is 155.5 million/ 245.9 million x 100 = 63.2%
When compared to the Great Depression, the typical length of unemployment in the modern (post-Great Depression-era) U.S. economy is
relatively brief
You agree to lend $1,000 for one year at a nominal interest rate of 10%. You anticipate that inflation will be 4% over that year. If inflation is instead 3% over that year, which of the following is true?
The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in inflation.
Indicate whether the following statement is true or false and why. "A wage rising slower than the rate of inflation is actually falling."
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
If firms pay what are called "efficiency wages", they pay wages that
motivate workers to increase their productivity.
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
(Number of unemployed / Number in labor force) x 100
How does the U.S. economy create and destroy millions of jobs each year? (Mark all that apply.)
--> In the market system, new firms are constantly entering and exiting various industries. --> Some businesses are expanding, while others are contracting.
The BLS uses the establishment survey to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage.
--> It is based on company payroll and not on unverifiable answers. --> It does not include information about self-employed people.
Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation? (Mark all that apply.)
--> Lenders lose from a lower real interest rate. --> Borrowers gain from a lower real interest rate.
If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
-3%
If a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?
0.8%
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
A. It fails to account for illegal activities. B. Underemployed people are considered employed. C. Discouraged workers are not considered unemployed. D. It does not account for inaccurate responses to the Current Population Survey. --> All of the above.
Which of the following causes changes in the CPI to overstate the true inflation rate?
A. New product bias B. Substitution bias C. Increase in quality bias --> All of the above
Even perfectly anticipated inflation imposes costs. Why?
A. Some wages will fail to keep up with anticipated inflation. B. Paper money loses its purchasing power by the rate of inflation. C. Menu costs. --> All of the above.
When the economy is at full employment,
A. the unemployment rate is greater than zero. B. the natural rate of unemployment prevails. C. all remaining unemployment is either frictional or structural. --> All of the above.
Which of the following can give an early warning of future increases in the price level?
PPI (Producer price index)
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
They decrease the opportunity cost of job search.
